Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Osler | Simon Hodgett, Christine Jackson | May 12, 2022
FIs pursue agreements with fintechs for a number of reasons, including accessing novel technology capabilities with a nimble development team, collaborating on new product offerings, and accessing potential new, under-tapped customer demographics. In our practice, we frequently see a wide variety of agreements, including outsourcing and complex services agreements, collaboration agreements, cloud services agreements, reseller agreements, marketing agreements and technology development and licensing agreements. There are common negotiation challenges and solutions, however, that are worth considering.
Fintechs and FIs have differences in structure, history, philosophy, regulatory requirements and stakeholders.
Fintechs offering technology to FIs are usually not directly heavily regulated and must grow at a high velocity with limited resources. Revenue acquisition is essential for early stage fintechs, and budgets for complex and protracted legal negotiations are limited; speed to a deal is an important consideration. Solutions (including all important security-related functionality) may be works in progress. Decision-making is usually centered on a few individual stakeholders.
FIs, on the other hand, are heavily regulated; their regulators prescribe onerous requirements and standards that the FIs must meet, expect the FIs to comply, and have little tolerance for non-compliance. Service continuity, data access and security, regulatory compliance, reputational risk and customer retention are always top of mind for FIs.
Fintechs must consider the regulatory environment [and constraints] of their business and design systems and policies from an early stage in their development and anticipate how these will be satisfied in the contracting process.
In conjunction with preliminary business discussions, a fintech should also ask the FI about its stakeholder review process (e.g., whose approval is required and how long the approval process is expected to take) at the outset of negotiations and raise any relevant key issues for clarification and expectation alignment. Key issues and points of alignment may include:
Fintechs should consult advisors in advance to get a sense of what contracting terms can be anticipated from the FI, given the context of the services, the types of cybersecurity requirements that will be expected, and whether the arrangement is likely to be viewed as material outsourcing or otherwise high risk.
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